Tips for Beginner Real Estate Investors

Contrary to popular belief, there are many different categories of real estate investments. These include single family rentals (SFR), apartment rentals, commercial property, and house flipping. The most popular and low-risk is SFR. According to an article by American Real Estate Investments, SFR is the most low-risk in ‘A’ rated neighborhoods. This is true because ‘A’ neighborhoods often attract the most desirable tenants, but it often means a much higher price point. At KC Metro Homes, we usually invest in and provide SFR in ‘B’ neighborhoods with growth potential, which still provides high tenant quality while allowing to enter the investment market at a more affordable price point and leaving room for area growth.

The next real estate investment mentioned in the article is house flips. Flipping houses is much riskier than investing in SFR. There is the possibility of expensive surprises popping up during the remodeling process (especially for those without enough experience), but while they are risky, house flips also have the possibility of a very high reward. Also, another potential risk is that the buyers pool for house flips tends to be much smaller and more localized than investing in SFR and the holding period tends to be longer, depending on your exit strategy.

The next two types of real estate investment are apartment rentals and commercial property. Apartment rentals are very costly upfront but can be very profitable. While the net return can be high there is also a high rate of vacancy, and depending on the location rating, the tenant quality can be very low. In line with SFR, the better the tenant quality the higher the price point. Investing in an apartment can also be challenging for first time investors.

Commercial property on the other hand is for experienced investors. It is usually the most profitable and has the lowest vacancy rate but incredibly high entry costs. If an investor has enough capital to wait for the profit than it is the most profitable investment. As a whole, real estate investments have pros and cons and so does any type of investment. Knowing the pros and cons of each can help a new investor, or even an experienced one, know what investment is best for them.